(Jamaica Observer) Local financial stakeholders lobbying for the Government to take on a US tax compliance rule, which require them to release client information to American authorities, have gone regional.
But firms are still not clear how they will comply with the extra-territorial law and not break local privacy laws, while the state doesn’t yet know how it can intervene.
The Caribbean Association of Banks (CAB) took a position paper to the Caricom back in June, when the group agreed to establish a task force to figure out how to take on Foreign Account Tax Compliance Act (Fatca).
The task force would comprise nine individuals including the Jamaican ambassador to Washington and another representative of the Government, due to Jamaica being the member state most advanced in addressing the Fatca issue.
But CAB representatives are hoping that its conference to be held in Jamaica in November, which they expect will see the largest meeting of regional bank heads, will result in regional stance.
“The conference offers an opportunity for the first time for regional banks and financial institutions to come together on this issue, so that we may now know where we are in terms of Fatca,” said Tasha Manley, chief compliance officer at Jamaica National Building Society (JN). “We hope to have this issue addressed and discussed by all, in terms of coming to a united stance on where we go.”
Back in April, a group of financial sector players brought the matter to the attention of the public and, in particular, the Jamaican government.
They wanted the state to intervene in a similar way to countries, such as the UK, France, Germany, Italy and Spain, which initiated discussions with the US, towards establishing reciprocal bilateral arrangements with respect to the Fatca reporting regime.
In June, Finance Minister Peter Phillips said that the Government would put several measures in place to help institutions prepare for the new tax law’s implementation in 2013, including a risk assessment by the Bank of Jamaica (BOJ).
“If this proves possible, the financial entities will be relieved of some liabilities particularly if reporting is done through the local central authorities who would be empowered to receive this information,” he said.
Up to last month, in an interview posted YouTube by JN, BOJ general counsel Robin Sykes said that the central bank’s discussions with US authorities indicated that the avenue for a government-to-government arrangement on Fatca was open, in principle.
However, “the protocol for actually setting up that relationship has not yet been clearly described at this point,” he said.
“So it will required some further discussions with the US authorities to determine what e will be the criteria and the ground rules for these kind of bilateral arrangements.”
Importantly, the central bank has to find out if the Government could face any liabilities should it take on the task of information sharing.
In the meantime, financial institutions, including banks, building societies, credit unions, securities dealers and insurers, are preparing to meet the June 30 deadline next year. They will have to agree to comply with the new tax law, or the Government would have had to work out an bilateral agreement by then.
Otherwise, they could face termination of correspondent banking relationships in the US and internationally.
“The position of Jamaica National, is the same as every financial institution in Jamaica,” said Carlton Barclay, JN deputy general manager and chairman of CAB’s strategic planning and advocacy sub-committee. “In terms of compliance, we have to be preparing to comply. All the requirements, all the system changes, all the reporting requirements, we are preparing to do that.”
He added that banks were doing their part but “nothing else has happened”, taking a swipe at apparent Government inertia on the issue.
Fatca aims to crack down on tax dodgers who hide hundreds of millions of US dollars in offshore accounts annually in an effort to avoid paying Washington its due.
Financial institutions are being asked to report the names and tax identification numbers of “US persons” with balances above US$50,000 ($4.5 million) to the Internal Revenue Service (IRS), if they want to continue doing business with the US.
A “US person” under Fatca is defined as someone having US citizenship, a US green card, a US birthplace, a US residence address or US correspondence address, a US passport, among other things.
Local financial institutions argue the new compliance rules will, among other things, come with burdensome implementation costs and an outflow of funds from the formal banking system.
Implementation costs of Fatca are expected to run from US$100,000 to upwards of US$1 million. The implementation period is 2013 to 2017, but financial institutions are required to sign on to the agreement by June next year.
Foreign institutions that do not enter into an agreement with the IRS will be subjected to a 30 per cent gross withholding penalty on certain types of payments from US-sourced income, such as gross proceeds from the disposition on US securities, dividends and pass-through payments.
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